Are you wondering why the regulatory landscape for cannabis in California is so complex? Look no further than the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)!
California first regulated cannabis businesses in 2015 when it enacted the Medical Cannabis Regulation and Safety Act (MCRSA). Previously, most collectives and nonprofits were operating without much accountability. With MCRSA and the passage of the Adult-Use of Marijuana Act (AUMA) in November 2016, cannabis businesses suddenly faced much more regulatory oversight.
This dual system for the medical and adult-use markets was burdensome on both businesses and enforcement officials alike. The California State Legislature passed MAUCRSA in June of 2017, combining medical and adult-use cannabis into one legal framework.
Three governing bodies
Although MAUCRSA’s intent was to clarify cannabis regulations and make compliance easier, it did not entirely achieve that outcome. Under MAUCRSA, there are three governing bodies:
- California Department of Food and Agriculture (CDFA)
- California Department of Public Health (CDPH)
- Bureau of Cannabis Control (BCC)
The CDFA regulates cultivation operations, the CDPH regulates manufacturing operations, and the BCC covers everyone else, including distributors and retailers. Among the three of them, hundreds of emergency regulations have been released.
California is also unique in that it has a large number of local jurisdictions: 58 counties and 482 incorporated cities. Each local jurisdiction has the option of creating its own rules or banning cannabis businesses altogether. To make matters more difficult, a business cannot receive a state license until it first obtains a local license. It means counties and cities have little choice but to create local ordinances and licensing structures.
The case for over-regulation
Many licensees feel that California issued too many rules and that the departments in charge are over-regulating cannabis. For those that existed prior to MAUCRSA, transitioning from a loosely regulated system to a tightly regulated one has been very difficult.
Over-regulation has led to some rather stark outcomes. There have been frequent complaints about increased prices of cannabis and cannabis products since legalization went into effect earlier this year. High state and local taxes are also contributing to higher prices. The effective rate of state and local taxes on marijuana growers is between 40% and 60% in California, compared to 18% in Oregon and 33.1% in Nevada.
There have also been complaints from medical patients who are no longer able to access products. Under MAUCRSA, collectives growing cannabis for licensed patients must operate on a nonprofit basis, but they still have to pay taxes. Compassionate care facilities are being forced to temporarily halt operations at an alarming rate, putting sick patients at risk.
Over-regulation is also coming back to haunt state regulators who enacted conflicting regulations.
For example, the CDPH states that manufacturers could sell cannabis products after January 1 of this year, even if they do not meet the state’s packaging and labeling requirements, but only under certain conditions. One of these conditions is the cannabis product must not exceed the applicable THC limits, listed as 100mg for edibles and 1,000-2,000mg for concentrates.
However, this is inconsistent with the BCC’s regulations, which allow medical cannabis products to be transported and sold prior to July 1, 2018, regardless of the amount of THC in them or whether they meet the state’s packaging and labeling requirements.
Another conflict occurs between the CDFA’s regulations and MAUCRSA’s rules concerning cultivation limits. In the first major court case against California since it enacted its emergency cannabis regulations, the California Growers Association sued the CDFA over a loophole in its licensing scheme that effectively allows cultivators to set up “mega-farms” by stacking unlimited small grow licenses.
While the CDFA did not put a cap on small cultivation facilities, MAUCRSA includes a cap on small cultivation of 5,001-10,000 square feet of canopy. MAUCRSA also prohibits large cultivation facilities and limits medium cultivation facilities to one per person until 2023.
The California Growers Association contends that because the lack of a cap would essentially allow growers to do what they would otherwise be prohibited by statute from doing until 2023 (i.e., cultivate more than one acre per person), the CDFA regulations are inconsistent with the statute and judicial intervention is needed to reconcile them. Regardless of which side prevails, this case is interesting because it’s the first legal challenge to California’s conflicting cannabis regulations.
Working with regulators
At Simplifya, we occasionally have to reach out to state or local regulators to ask clarifying questions about their regulations. To sum up the frustrations of that process, here is how one law firm advised its cannabis clients: “PLEASE BE ADVISED, we have been in constant contact with the CA Secretary of State and it is painfully clear that they have no idea what they are doing. None whatsoever.”
Our experience working with local-level regulators has been just as confusing. Several localities have had trouble identifying and relaying to us specifically which ordinances and rules are currently in effect when we asked them to clarify.
Given the complexities of California’s cannabis regulations, it’s no wonder our state audit questions total more than a whopping 1,100. Some counties and cities regulate so extensively that even their audits have more than 300 questions alone.
The Simplifya perspective
We feel our California clients’ pain, and have simplified things as much as possible. We don’t want to anyone to be at risk of receiving notices of compliance violations like more than 900 cannabis businesses in the state have already experienced. That’s why we work hard to achieve a delicate balance of thoroughness and brevity.
Simplifya’s all-in-one compliance tool can identify the problem areas in your compliance operation and enable you to properly address them. Hopefully, California will refine its cannabis regulations soon. Due to its history and size, it has a lot of influence on the future of our industry. If California makes cannabis regulations simpler, less contradictory, and easier to understand, the rest of the country will follow suit.